The Reserve Bank of India has imposed a penalty of Rs. Five lakh (Rupees five lakh only) on Karnataka Bank Limited for non-compliance with its directives on derivatives.
The penalty on Karnataka Bank Limited has been imposed for failing to carry out proper due diligence on user appropriateness and suitability of products and failing to document the pricing, periodical valuation of products and quantifying financial risks in derivatives.
The Reserve Bank had issued show cause to the banks. The bank has submitted their written replies in response to the Reserve Bank. On a careful examination of the bank’s responses and their oral submissions made during the personal hearings, the Reserve Bank found that the violations were conclusively established. The Reserve Bank of India therefore penalised the banks in exercise of the powers vested with it under the provisions of Section 47A(1)(b) read with Section 46(4)(i) of the Banking Regulation Act, 1949.
The RBI has hiked its base rates recently in order to control the growing inflation. The earlier hikes have already leaded to the slowdown in loan business of the banks; it has also made it mandatory for all banks to increase their loan rates (home loan, personal loan, business loans, vehicle loan etc.)